The card issuer offers no credit; the cardholder merely spends money that he or she placed on a card. The card number uniquely identifies a record in a central database where the balance is recorded.

In many ways, a reloadable card is similar to a credit or debit card. Like most debit and credit cards, many reloadable cards carry a logo from one of the major electronic payment networks — Visa, American Express, Discover or MasterCard.

Any business that accepts these logos likely accepts reloadable cards.

Poor credit

Prepaid cards are marketed to consumers with poor credit who don’t qualify for a credit line that backs a mainstream credit card. Fees associated with these cards are often very high.

Though convenient, these cards can be an expensive way to spend your own money.

A major difference between prepaid cards and a credit or a debit card is that the cards have to be "loaded" with money before you can use them. When the balance gets low, you can reload; that is, add more money, as the name implies. Depending on the card, you can reload online, in person or through a direct deposit from a work place.

Advantages:

•They can be safer than cash. If the card is registered with an issuer and it’s lost, you can recover your full balance.

•They are convenient like credit cards but don’t allow users access to a credit line.

•Account activity does not affect your credit.

•Credit checks are not required to get a prepaid card.

•Prepaid cards that allow direct deposit may save you money by allowing online and telephone payments for other debts.

•The FDIC — or laws requiring consumers to have access to those funds — protects money on the card.

•A prepaid card may teach young people how to use credit cards responsibly and how to stick to a budget.

•Prepaid cards can be used internationally.

Disadvantages:

•Prepaid cards’ fees make them more expensive to have and to use.

•Prepaid cards cannot help you establish or build a good credit history

Tips for choosing a prepaid card

•Will businesses that you frequent accept the card?

•Is there a minimum requirement for the card to remain usable?

•Are there reload limits?

•Is there a daily cash withdrawal limit?

•Are there convenient ATMs where you can make withdrawals?

•Are there fees charged for withdrawals or other activity?

Managing your card

Reloadable cards require that you monitor your account. This will prevent you from being charged for unnecessary services.

Monitor your balance to prevent over-the-limit usage.

Fees

Not all prepaid cards are equal. Read the small print on the card's website before "loading "it.

Below are common charges associated with prepaid cards.

•Purchase fees for buying the card at a retail store.

•Activation fees: a one-time charge also called an opening fee — can cost $30 or more.

•Monthly maintenance fee: varies depending on the card, but can be upward of $10 a month.

•Reloading fee: applied when you add more money to the card; may include third-party charges.

•Purchase transaction fee: May be waived for some direct deposit cards.

•Overdraft fees: some cards will charge if you spend more than what is on the card.

•Cashier withdrawal: charged when you withdraw at a bank or an agent location.

•ATM fee: charged for withdrawing money from an ATM. Some cards have free withdrawals at participating ATMs.

•Denied transaction fee: some cards charge a user if purchases are denied due to insufficient funds.

•Funds transfer fees: may be charged for transfers from one card to the other.

•Balance inquiry fee: charge for obtaining your balance statement.

•Inactivity fee: Charge applied if you don’t use the card for a determined period, typically 60 to 90 days.

•Card replacement fee: charged if your card is lost or stolen.

•Customer service fee: charged by some card issuers when you contact their customer service department.

•Foreign currency conversion fee: You may be charged if you use the card outside the U.S.

FIND IT ONLINE

Learn more about prepaid cards at http://federalreserve.gov/consumerinfo/wyntk.htm.

Elaine Courtney is a Family & Consumer Sciences Extension agent at the Okaloosa County Extension office in Crestview.